Rio Tinto PLC is placing a bold bet on Asian demand for iron ore, pushing ahead with a multibillion dollar expansion of its Australian mines despite sharp swings in prices that forced many of its rivals to curb expenditure and lay off workers.
Rio Tinto, which produced a record 253 million metric tons of iron ore globally last year, Tuesday said it was targeting a more than 50% increase in its output capacity in the remote Pilbara region of Western Australia state within three years. The decision comes as iron ore prices hover close to 15-month highs after rebounding nearly 80% since September on signs that China's economy is improving.
Mining investment in Australia is flickering back to life after a challenging several months that saw the industry scale back or delay projects worth more than US$60 billion on an uncertain outlook for China's appetite for commodities like copper and iron ore. BHP Billiton Ltd. put off a decision on expanding its Pilbara port operations, while Rio Tinto closed offices and cut staff.
In a sign that confidence is returning, Fortescue Metals Group Ltd. said late December it planned to restart development of the US$1 billion-plus Kings iron ore deposit in the Pilbara. It had put the project on ice in September after being caught out by the sudden fall in the iron ore price, which also forced it to renegotiate its vast debt pile with lenders.
Rio said Tuesday it has approved the expansion of rail, port and other infrastructure needed to grow its annual production capacity to 360 million tons by mid-2015 in the Pilbara, an area that accounts for roughly 40% of the world's sales of iron ore by sea. It had already approved an increase to 290 million tons annually by the end of this year, which management said remains on schedule.
"This was another year of strong operational performance across the group," Chief Executive Tom Albanese said in a statement. "Markets remain volatile, but our business continues to perform well."
Rio Tinto's production of iron ore from mines in Australia and Canada rose 4% in 2012, ahead of guidance given by the company in mid-October for output of about 250 million. Production from the Pilbara mines alone was 239 million tons, or more than 90% of the total.
The ports that Rio Tinto uses to ship its iron ore in the Pilbara were closed for 87 hours this month as the first tropical cyclone of the season passed along the coastline, but the company said its mines and trains continued to operate at full capacity. Cyclones regularly strike the region from December to late April, and often disrupt production.
Despite the recovery in iron ore prices, Mr. Albanese said Rio Tinto was continuing to take action on costs to protect its mining profits.
The coal division, in particular, has been targeted and Rio said it continued to actively reduce controllable costs in the business in response to weak prices and the strength of the Australian dollar.
Rio Tinto's Australian production of hard coking coal used to produce steel fell 11% in 2012 to 7.86 million tons, in part due to maintenance at its Hail Creek mine and a plant shutdown at the Kestrel mine as part of an expansion project. Production of thermal coal used in power generation rose 15% last year, with a larger 37% jump in the fourth quarter compared with the corresponding period of 2011.
Among other commodities produced by the Anglo-Australian company, copper output rose 6% in 2012 owing to a recovery in ore grades, but aluminum production was 10% lower than in 2011 following a strike at a smelter in Canada.